A purchase contract for buying a house is the written, signed agreement that locks in the price, terms, and conditions of the sale and binds both the buyer and seller to see it through. Every state requires these contracts to be in writing under the Statute of Frauds, so verbal offers and handshake deals carry no legal force. Once both parties sign, you’re “under contract” and legally committed to closing, provided the conditions built into the agreement are met. The document controls everything that follows: inspection windows, financing deadlines, who pays which closing costs, and what happens if either side wants out.
What’s Inside the Contract
Most of the content falls into a handful of core categories. The contract identifies the buyer and seller by full legal name and mailing address, describes the property by its legal address (and sometimes a more detailed legal description), and states the purchase price along with how the buyer plans to pay.
The financing section spells out whether you’re paying cash, getting a conventional mortgage, using an FHA or VA loan, or relying on seller financing. The loan type matters because it affects deadlines, concession limits, and what the lender will require before closing. If you’re financing, the contract sets a deadline for you to secure a mortgage commitment.
Earnest money is the deposit you put down when you go under contract, signaling you’re serious. The standard amount runs between 1% and 3% of the purchase price, though competitive markets sometimes push it higher. The deposit sits in an escrow account and is typically credited toward your down payment or closing costs at closing. Whether you can get it back if the deal collapses depends entirely on the contingencies written into the contract.
The contract also sets a closing date, itemizes what stays with the property and what the seller takes, and requires signatures from all parties to be enforceable. Built-in appliances, light fixtures, and window treatments are common sources of confusion, so the agreement should list specifically what’s included and excluded.
In most transactions, the buyer’s agent fills out a standardized form from the local or state real estate association, and the seller’s agent reviews, negotiates, or counters. Attorneys often draft the contract in complex deals or for-sale-by-owner transactions, and a handful of states give both sides a short attorney review period after signing (typically around five business days) during which either lawyer can request changes or cancel. Even where it isn’t required, having a real estate attorney read the contract before you sign is usually worth the cost. A paragraph that reads innocently in plain English can shift thousands of dollars of risk from one side to the other.
Contingencies That Let You Walk Away
Contingencies are escape hatches. Each sets a condition that must be met by a specific deadline, and if it isn’t, the protected party can cancel the deal and usually recover the earnest money. Without them, you’re locked in regardless of what you discover after signing.
Inspection Contingency
This gives you a window, typically 7 to 10 days, to hire a professional to examine the property’s structure, systems, and condition. If the inspector uncovers major problems like foundation damage, a failing roof, or outdated electrical wiring, you can ask the seller to repair, negotiate a price reduction, or walk. Some contracts use an “as-is” clause, meaning the seller won’t fix anything the inspection turns up. Even under an as-is contract, you still have the right to inspect and to cancel if the inspection contingency is in place.
Financing Contingency
This protects you if your mortgage falls through. If you can’t get loan approval by the deadline in the contract, you can cancel without forfeiting your deposit. Dropping this contingency, which sellers sometimes pressure buyers to do in hot markets, puts you on the hook for the full purchase price even if no lender will fund you.
Appraisal Contingency
Your lender will only finance up to the home’s appraised value. If the appraisal comes in below the purchase price, this contingency lets you renegotiate or back out. In competitive markets, buyers sometimes add an appraisal gap clause, agreeing to cover the difference up to a set dollar amount. That lets you compete without giving up all protection if the numbers are far off.
Title Contingency
If a title search turns up unpaid liens, boundary disputes, or unresolved claims from prior owners, this contingency gives you a way out. Title insurance, which is a separate product purchased at closing, protects you after the fact if a previously unknown ownership defect surfaces later. It covers problems that existed before you bought, not issues that arise afterward.
Sale of Prior Home Contingency
If you need the proceeds from selling your current home to fund the new purchase, this contingency makes the deal conditional on that sale closing by a certain date. Sellers tend to resist it because it ties their timeline to a transaction they can’t control, so it works best in slower markets.
Disclosures the Seller Must Give You
Federal law requires specific disclosures for homes built before 1978. Sellers must tell you about any known lead-based paint or lead hazards, hand over existing inspection reports, and provide an EPA pamphlet called “Protect Your Family From Lead in Your Home.” The contract itself must contain a lead warning statement, and you get at least 10 days to arrange your own lead inspection before the contract becomes binding. You can waive that inspection period in writing, but you can’t be pressured into doing so.1US EPA. Real Estate Disclosures about Potential Lead Hazards The rule covers most pre-1978 housing but exempts zero-bedroom units like studio apartments, short-term rentals of 100 days or less, and housing exclusively for elderly residents unless a child under six lives there.2eCFR. 24 CFR Part 35 Subpart A – Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards
Most states also require sellers to complete a property condition disclosure form covering known defects like water damage, pest infestations, structural issues, and problems with major systems. The specifics vary, but the principle is consistent: sellers must reveal material problems they know about. A seller who hides a known defect can face liability even after closing.
Who Pays What at Closing
The contract specifies how closing costs are split. Buyers can negotiate for the seller to contribute toward origination fees, title insurance, prepaid property taxes, and discount points. These contributions are called seller concessions, and federal loan programs cap how much the seller can kick in.
For conventional loans backed by Fannie Mae, the limit depends on your down payment:
- Less than 10% down: the seller can contribute up to 3% of the sale price or appraised value, whichever is lower
- 10% to 24.99% down: up to 6%
- 25% or more down: up to 9%
- Investment property: up to 2% regardless of down payment
These percentages are calculated against the lower of the sale price or appraised value, not the loan amount.3Fannie Mae. Interested Party Contributions (IPCs)
FHA loans allow seller concessions up to 6% of the sale price. Every dollar above that threshold gets subtracted from the sale price before the lender calculates the loan amount, effectively shrinking the mortgage.4HUD. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower VA loans cap seller concessions at 4% of the sale price. Regardless of loan type, concessions can only cover closing costs and prepaid items. They cannot be applied to your down payment.
From Signing to Closing
Once you’re under contract, the clock starts on a series of overlapping deadlines. The contract dictates the order and timing, and missing a deadline can have real consequences.
The inspection period usually comes first. You’ll schedule a general home inspection and potentially specialized inspections for radon, mold, termites, or the septic system. On a pre-1978 home with a lead paint contingency, you have at least 10 days for that inspection specifically. Results feed into repair negotiations or, if the findings are bad enough, a decision to cancel.
While inspections are happening, your lender is processing the loan. The contract sets a deadline for you to receive a mortgage commitment letter confirming funding. The lender also orders an appraisal to confirm the property’s value supports the loan amount. If the appraisal falls short, the financing and appraisal contingencies give you leverage to renegotiate or exit.
A title company or attorney searches public records to confirm the seller actually owns the property free and clear. They’re looking for outstanding mortgages, tax liens, judgments, easements, or anything else that could cloud title. If problems turn up, the seller typically has to resolve them before closing.
Federal law requires your lender to deliver a closing disclosure at least three business days before closing.5Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs This document itemizes every cost, fee, and credit in the transaction. Compare it line by line to the loan estimate you received earlier. This is your last chance to catch discrepancies before they become your problem.
Most contracts give you the right to a final walkthrough, typically 24 to 72 hours before closing. This isn’t a second inspection. You’re confirming the property is in the same condition it was when you went under contract, that agreed repairs were completed, that included appliances and fixtures are still there, and that the seller has moved out. If something has changed, raise it before closing. Once you sign closing documents, your leverage evaporates.
One clause worth reading carefully: if the property is damaged by fire, a storm, or another event between signing and closing, who bears the loss depends entirely on the contract. Some keep the risk on the seller until the deed is delivered; others shift it to the buyer earlier. Many give the buyer a right to cancel if damage is substantial, with deposits refunded.
What Happens If Someone Backs Out
Walking away from a signed purchase contract without a valid contingency is a breach, and it carries financial consequences for both sides.
If the buyer breaches, the most common consequence is losing the earnest money deposit. Most contracts include a liquidated damages clause that lets the seller keep the deposit as compensation, often capping the amount at a percentage of the purchase price. The forfeiture has to be spelled out clearly; vague language may not be enforced. In some situations the seller can also sue for additional damages, though that’s less common in residential deals.
If the seller breaches, the buyer’s strongest remedy is a lawsuit for specific performance. Because courts treat every piece of real estate as unique, money alone may not adequately compensate a buyer who loses a specific home. A court can order the seller to go through with the sale and, if the seller still refuses, appoint an officer to sign the deed on the seller’s behalf. Buyers pursuing this remedy can also file a notice in the public records that effectively prevents the seller from selling the property to someone else while the lawsuit is pending.
Many contracts require mediation or arbitration before either party can file in court. Mediation uses a neutral third party to help both sides reach a voluntary agreement, and either side can walk away. Arbitration is more formal: an arbitrator hears both sides and issues a binding decision with very limited options for appeal. A mandatory arbitration clause generally means giving up the right to go to court, so read that section carefully before signing.
Why Every Deadline Is a Hard Deadline
Many purchase contracts include a “time is of the essence” clause, and it means exactly what it sounds like: every date in the contract is firm. Missing a contingency deadline, a financing commitment date, or the closing date can constitute a material breach, even if you’re only a day late. The other party can then cancel and, in a buyer’s case, keep the earnest money.
Not every contract includes this language, and in some states a party has to give clear written notice making time of the essence before the strict deadline applies. The safest approach is to treat every date in the contract as firm. Keep a calendar, track each milestone, and communicate early if you’ll need an extension. An extension agreed to in writing protects you. A missed deadline without one does not.